Why Pakistan is faced with steep electricity and gas bills

The global economic recession has hit every nation; but it has hit some more than the others. In case of Pakistan the financial travails of the general public, aggravated by the pandemic, seem to be lingering on even when the economy is showing some signs of getting back on its feet.

The most striking example is the arrival of foreign remittances in record numbers, well over $2 billion for the eighth consecutive month. In January 2021 remittances amounted to $2.3 billion, up by 19 per cent over January 2020 figures. Remittances remained slightly lower from December 2020 level of $2.4 billion.

But the total looks quite healthy — $16.5 billion during Jul-Jan FY21, registering 24 per cent increase over same period last year. This type of support is sorely needed for an economy that has huge debts and requires consistent pouring in of forex reserves in order to pay back its international dues.

This has stablized the rupee against the dollar as well. Once hovering around rupees 180 to a dollar, the rupee has come down to rupees 159 to a dollar.

This good news however is not falling on welcoming ground. This is simply because the daily grind of living costs isn’t showing any sign of relenting. The most problematic part of this painful equation are electricity and gas rates that have seen phenomenal rise of late.

One estimate suggests that under the revised electricity rates, the government has already collected over Rs700 billion from the consumes. And this is before the two back-to-back revisions that have taken place recently that have passed over Rs4 per unit cost to the consumer. Gas rates too have seen consistent rise as have petrol and diesel.

The inflationary impact of these adjustments is never fully documented but the rough estimate is that it adds anything between 16 to 24% to the bills for groceries and travel.

Paying the bills has become a headache that does have an anodyne available at present. The government’s argument is that these rates were artificially stabilzed and the cost was paid in terms of rise in circular debt, which means that every entity involved in the supply chain of electricity including the government owes money to each other and since one does not pay the debts, none is able to settle the books.

For this ruinous situation the government blames the predecessors who did not reform the power sector and streamline its payments.

Other factors include expensive electricity production through furnace oil run plants, thermal plants and weak reliance on hydel power production, which is the cheapest way to produce electricity.

No electricity during productive hours

All governments set up power plants in order to meet what is locally called “load shedding” -- essentially meaning no electricity during productive hours. Some of the agreements with the power producers force the government to buy all the electricity they produce regardless of whether the government is able to use that electricity or not.

While incredible as it may sound, Pakistan’s total installed capacity and total availability of electricity is more than it ends up using because of power distribution system, online losses and theft.

When the government defaults on its payments to producers, they stop making further payments and this creates the vicious cycle of circular debt. The government raises electricity rates ostensibly to make payments to the producers. This in effect is how the buck of systemic and policy flaws is passed on the consumers.

Gas and petrol rates are more scandalous as here the government -- like all previous governments -- raises the rates to simply make more money off the people. The difference between the global price of petrol and its rates on sale points is almost 30 per cent — easy money picked off public’s pockets.

The electricity, gas and petrol bills are generally not a consistent concern breeding discontent if the economy is doing well and more and more people are getting jobs generating resources to pay the bills off.

In an economically tight situation, the bills hound the public and the more they increase, the more the sense grows that life is becoming harder to manage.

It is difficult to see how any government can manage this problem till such time that economic activity returns and the national treasury has enough depth and strength to cushion the burden. Reform of the power sector has remained a holy grail that everyone cherishes but none is able to catch.

At any rate this is a long-term process while the public’s grief is immediate, nay, almost daily. And yet the hope of real relief through reduction in the rates of electricity and gas has not been farther than it is at present.

Syed Talat Hussain is a prominent Pakistani journalist and writer. Twitter: @TalatHussain1